The following item is a Memorandum of Economic Policies of the government of Argentina, which describes
the policies that Argentina intends to implement in the context of its request for financial support
from the IMF. The document, which is the property of Argentina, is being made available on the
IMF website by agreement with the member as a service to users of the IMF website.

February 14, 2000

Memorandum of Economic Policies

I. Background

1. The performance of the Argentine economy registered a marked improvement during
the 1990's. This reflected the macroeconomic discipline required by the convertibility
regime, the modernization of the productive structure engendered by the rapid growth of
investment, structural reforms, and, for most of the period, a favorable international environment.
The last decade also saw the consolidation of the institutions and of the democratic process in
Argentina, establishing the conditions for sustainable growth.

2. However, significant disequilibria remained, which in the second half of the
decade were reflected in significant volatility in the performance of the economy and contributed
to a slowdown in growth. Open unemployment remained high, especially in some
regions and sectors of the labor force. The public finances registered deficits throughout
the last decade, reflecting ineffective tax enforcement and erosion of the tax base, significant
increases and widespread inefficiencies in spending, as well as the initial fiscal cost of the social
security reform. As a result, the consolidated public sector net debt rose to an estimated 45.7
percent of GDP by 1999. Although this level is not especially high in comparison
with other emerging economies, its rapid growth in recent years gives cause for concern. The
current account of the balance of payments also recorded rising deficits in the second
half of the last decade. The underlying disequilibria in these areas were exacerbated by the
difficult international environment that prevailed in the more recent years, including the Asian,
Russia, and Brazil crises, the large (about 13 percentage points) deterioration of
Argentina's terms of trade between 1997 and 1999, and the generalized rise in risk
premia for emerging markets, which did not spare Argentina.

3. As a result of these external shocks, and of a weakening of policies, especially during the
second half of the year, the performance of the Argentine economy deteriorated significantly
in 1999. The decline in activity, which had already begun in the second half
of 1998, in the aftermath of Russia's crisis, deepened further in the first half of last year,
reflecting in particular the decline in demand from Brazil and other countries in the region and
tighter financing constraints on the private sector. Although the year ended with indications of a
recovery, real GDP is estimated to have declined by about 3 percent
in 1999. As a result, the rate of unemployment increased to 14.5 percent by
August 1999, before declining to 13.8 percent in the last quarter of the year. The
recession in the economy and declines in labor costs were reflected in a 1.8 percent
fall in consumer prices in 1999.

4. The significant decline in domestic demand more than offset the adverse impact on the
external trade deficit of the sluggish external demand, the depreciation of the Brazilian
real, and the terms of trade loss. The recession reduced the trade deficit to
US$2.2 billion from nearly US$5 billion in 1998, with a surplus, albeit
small, still being maintained vis-à-vis Brazil. Similarly, the current account deficit in
the balance of payments narrowed to about US$12 billion (4.3 percent of
GDP) in 1999 from US$14.5 billion (4.9 percent of GDP) in 1998. More
than half of this deficit was financed by net foreign direct investment (FDI), which rose
to a historical peak, and a significant part of private sector financing reflected intercompany
loans. Nevertheless, the total external debt (excluding amounts preborrowed and the
collateral on Brady bonds) continued to increase, to the equivalent of about 51 percent of GDP,
with only 15 percent of this debt in original maturities below one year. On the other hand,
the Argentine private sector is estimated to hold financial assets abroad equivalent to some
30 percent of GDP. The gross international reserves of the Central Bank amount to around
US$26 billion, covering nearly 100 percent of the monetary liabilities of the
Central Bank, and additionally, the banks have a large position in liquid foreign
assets.

5. The public finances deteriorated significantly in 1999, reflecting the
economic downturn, a further weakening of tax compliance, increased interest payments, and
overruns in primary expenditures. As a result, and despite higher than expected revenues from
concessions (amounting to 0.6 percent of GDP), the federal government deficit widened
to 2.5 percent of GDP in 1999 (2.7 percent, including the deficit of the health
service for retirees, PAMI), from 1.3 percent of GDP in 1998, while the
consolidated deficit of the provincial governments rose to an estimated
1.3 percent of GDP, from 0.8 percent of GDP in 1998. The total debt of
the provinces has risen significantly in recent years, exceeding by 1999 the
equivalent of 7 percent of GDP, and its service burden is projected to absorb nearly
13 percent of their combined revenues. In some highly indebted provinces, the debt
service burden exceeds 30 percent of their revenues.

6. The banking system maintained the sound conditions achieved during the latter part of
the 1990s and was well positioned to withstand the tightening of external financing
conditions in 1999. Notwithstanding the domestic recession and the difficult external
environment, deposits in the banking system continued to grow in 1999, albeit at
a slower pace than in previous years. Argentine banks maintained a cautious lending policy, and
raised their holdings of liquid assets to levels well in excess of mandatory liquidity requirements.
Nevertheless, the more difficult financing environment and the downturn in economic activity
exerted some pressure on the quality of banks' assets. Nonperforming loans rose from
10.3 percent of total risk assets in December 1998 to 11.5 percent of total
risk assets in November 1999 (from 4.0 to 4.7 percent net of provisions). The
banking system remains, nevertheless, well capitalized, with the capital adequacy ratio (Basle
criteria) slightly exceeding 20 percent at end-1999.

II. The Economic Program, 2000-02

7. The new government which took office in December 1999, following a democratic
and responsible transition, from the beginning demonstrated its awareness of the difficulties and
challenges facing it, and its firm determination to address them quickly and decisively, seeking a
broad-based social and political support for this effort. The government is also seeking the
support of the international financial community, and in particular of the IMF, through a
three-year stand-by arrangement.

8. The government sees as its foremost priority to create the conditions for the
sustainable recovery of economic activity that is needed to reduce unemployment and poverty in
a lasting manner, with continued price stability. These conditions include a sustained
increase in national savings, to finance the needed growth of investment without further
raising the external debt burden on the economy; and a progressive improvement of the
international competitiveness of local production, within the framework of the convertibility
regime to which the government is fully committed. Competitiveness will be strengthened by
continued moderation of costs and prices, productivity gains, wide-ranging structural
reforms--especially in the labor market, the education and health systems, and the financial
system--and by increased competition, as a result of improvements in the regulatory
framework.

III. The macroeconomic framework

9. The government believes that a firm implementation of the policies outlined in the
paragraphs below will boost confidence both at home and abroad, contributing to increased
availability and lower costs of financing for Argentine borrowers. This will enable Argentina to
benefit fully in 2000 and beyond from the recovery in foreign demand and improved
outlook for its export prices. The government is confident, therefore, that the Argentine economy
will record a sustained recovery in 2000, and the official forecast is for real GDP growth of 4
percent. Nevertheless, to strengthen confidence in the feasibility of the targets specified in the
program for which the government is seeking the Fund's support, this program is based on a
more conservative assumption of real GDP growth of around 3½ percent
in 2000. In the absence of adverse external shocks, real GDP growth could average at
least 4 percent in the subsequent years. These rates of GDP growth, in conjunction with
the elimination of long-standing rigidities in the labor market that is being sought through the
reform of the labor legislation outlined below, are expected to lead in the years ahead to a
sustained rise of employment, and a significant decline of
unemployment.

10. The adverse impact on the external accounts of the rebound in imports that is foreseen to
accompany the economic recovery in 2000 and beyond, should be largely offset by the
response of exports to the projected more favorable external environment--including renewed
growth and some real exchange rate appreciation in Brazil and a pickup in world trade--and the
improvement in the competitiveness of Argentine products. The terms of trade are also expected
to benefit from the strength of oil prices and the incipient recovery of other commodity prices.
The trade deficit is, therefore, expected to decline gradually during the program period,
partly offsetting the foreseeable continued increase in net interest payments abroad. Accordingly,
the current account deficit in the balance of payments is projected to rise only modestly in
relation to GDP, to around 4½ percent of GDP. FDI is projected to continue to cover
40 percent to 50 percent of this deficit. The total external debt is expected to
stabilize in relation to GDP during the program period, and to decline gradually
thereafter.

IV. Economic policies

11. The government is fully committed to a sustained effort of fiscal consolidation and
structural improvement in the public sector finances, which it views as necessary to reduce
the growing burden of the public debt on the Argentine economy and on its growth potential.
Faced with the substantial deterioration of the public sector finances in 1999, and the risk
of a further worsening in 2000 in the absence of early and decisive corrective action, the
federal government has moved quickly to strengthen the initial budget proposal
for 2000 through selective cutbacks in spending, and has secured the rapid passage
by Congress of a package of tax measures, designed to yield Arg$2 billion
(0.7 percent of GDP) this year. The tax package includes rate increases affecting the
income, excises, fuels, and personal wealth taxes, and a broadening of the base of the
value-added and income taxes. Additionally, the government halted the granting of new benefits
under long-standing and costly tax incentives regimes for industry and agriculture, and adopted
new measures to speed up tax collections. In designing the tax package, the government has
endeavored to minimize its impact on the lower income groups and to eliminate distortions. The
government has also decided to limit the planned reduction of employer contributions to the
social security system to net additions to employment. The government and the provinces have
also agreed to a "federal commitment" (compromiso federal) that sets federal
transfers to the provinces in 2000 and 2001 at levels below those that would
have been implied by the current rules of the revenue sharing system, and specifies other
commitments in regards to the reduction in the provinces' expenditures.

12. As a result of these steps, the government is confident that it will be able to contain the
federal deficit (including the deficit of PAMI) in 2000 to Arg$4.7 billion
(1.6 percent of GDP), in line with the requirements of the fiscal responsibility law
enacted in 1999. The government is also committed to reducing the deficit further
in 2001 and 2002, reaching equilibrium by 2003, at the latest, as
required by the same law. In particular, in 2001 it will seek to limit the federal deficit to
under 1 percent of GDP. Given the expected disappearance in 2001 of some
temporary factors which are boosting revenues this year, achievement of next year's target will
require strong and successful efforts to improve tax compliance, broaden the tax base, streamline
the federal administration, and reduce inefficiency and waste in public spending, as outlined
below.

13. The government is giving high priority to securing a substantial improvement in tax
compliance by reducing tax arrears, avoidance, and evasion. For these purposes, the
government: (a) is continuing efforts to strengthen the operational capabilities of the tax and
customs administration, including by increasing flexibility in its manpower utilization; (b) has
already sent to Congress bills to speed up the judicial treatment of tax cases, including the
establishment of a specialized branch of the judiciary to deal with such cases, and of special
national and regional secretariats within the court system to handle the collection of tax arrears;
(c) has introduced a program to facilitate the payment of arrears on taxes and social security
contributions accrued until October 1999 over a period of up to 60 months with no penalty
and at an average interest rate of 10 percent, while at the same time, to reduce moral hazard, it
has announced the elimination of other existing forms of tax forbearance; and (d) has sent
recently to Congress a bill requiring payments larger than Arg$10,000 to be made through bank
instruments, rather than in cash.

14. The effort to contain federal spending in 2000 and beyond will center on
streamlining the civil service, including in decentralized entities, and on improving cost
effectiveness in the delivery of public services. For this purpose, the government has already
eliminated a sizeable number of national secretariats; has implemented significant cuts in
personnel with temporary contracts, which had grown rapidly, especially in 1999; and is
planning a voluntary separation program and a wide-ranging elimination of existing vacancies.
As part of the recently submitted "fiscal emergency" law, it is seeking legal powers
to facilitate the redeployment of civil servants. A thorough effort has been initiated within each
ministry, under the direction of the Vice-President's office, to identify overlapping spending
programs, with a view to eliminating duplication of efforts and reducing costs. The government
intends to provide public managers greater responsibility in the allocation of their budgeted
resources, together with strengthened accountability for results, and for this purpose intends to
improve the available indicators of efficiency and effectiveness of spending programs, building
on best international practices in this area. The government is also fully committed to eradicating
corruption, increasing transparency and accountability of procurement practices. For this
purpose, it is seeking a wide-ranging renegotiation of contracts with its suppliers, and intends to
present a new modern federal procurement law.

15. The government intends to introduce in the next few months a new reform of the
social security system aimed at improving the intertemporal solvency of the system. This
reform will center on measures to, on the one hand, reduce the prospective deficit of the public
(defined-benefits) component of the system, and, on the other hand, increase competition and
promote efficiency in the private (defined-contributions) component of it. The steps that the
government intends to take to this effect include: (a) increasing gradually over the next ten years
the retirement age for women (currently 60 years); (b) seeking to align more closely the
contributive base for the self-employed to their actual incomes; (c) reforming the remaining
special pension regimes for selected categories of public employees, with a view to improving
equity and reducing their cost to the budget, and (d) strengthening the regulatory framework and
oversight for the private pension plans (AFJPs), to promote a reduction in the operating costs of
the latter and ensure their long term solvency.

16. In the health area, the government intends to promote the consolidation of
existing union-run health organizations, many of which are experiencing financial difficulties,
and to stimulate efficiency by fostering more effective competition among the remaining ones,
and between them and the private HMOs, following a strengthening of the regulatory and
supervisory framework for the latter. As concerns the PAMI--the financial situation and quality
of service of which has deteriorated sharply in recent years, requiring emergency federal
intervention--the government is committed to enacting quickly comprehensive reforms aimed at
ensuring its financial viability and improving the quality and cost effectiveness of its services. As
first steps in that direction, the government has required the immediate renegotiation of all
contracts with suppliers, reducing unnecessary intermediation, and has cut back significantly
non-tenured personnel in the entity. It is also analyzing how best to integrate the PAMI with the
rest of the health system as from next year. To promote transparency, the government intends to
re-incorporate the operations of PAMI into the federal budget for 2001.

17. The government is seriously concerned about the substantial deterioration of the
provincial finances, especially in 1999, and is committed to seeking a sustained
improvement in these finances, with full respect of the constitutional autonomy of the
provinces. For this purpose, in the context of the "compromiso federal" mentioned in
paragraph 11 above, it has secured the agreement of the provinces to enact quickly provincial
fiscal responsibility laws, modeled on the federal one, that would ensure a progressive
elimination of their budgetary deficits, through the containment of expenditures, improvements
in tax enforcement, and increased transparency in their budgetary accounts. A number of highly
indebted provinces have already moved to enact fiscal emergency laws, enabling them to cut
back excessive payroll and other spending. Other provinces have introduced various
revenue-raising measures. The government intends to condition its support of the restructuring of
the debt of highly indebted provinces on the latter's agreement for specific and monitorable
programs of fiscal adjustment. It will also utilize its authority to approve the resort by provinces
to financing in foreign currency (including financing by multilateral organizations), to ensure that
new financing is consistent with a sustained decline of provincial deficits in 2000 and
beyond. For this purpose, the program establishes indicative ceilings on the consolidated
deficit of the provinces equivalent to 0.8 percent of GDP in 2000,
0.5 percent of GDP in 2001 and about 0.3 percent of GDP in 2002. In
addition, the program sets a performance criterion for December 2000 for the net
change during the year in the debt of the consolidated public sector, including the provinces' debt
with commercial banks and that denominated in foreign currency. The existing system of
monitoring of various forms of recourse by the provinces to foreign and domestic financing will
be rapidly improved, to permit a timely monitoring of compliance with the program
targets.

18. The government recognizes the need to reach early agreement with the provinces on a
lasting reform of the revenue sharing system to become effective after the expiration of
the "compromiso federal" at the end of 2001. This reform of the system will
aim, among other things, at simplifying the existing rules by determining tax shares in relation to
the total tax revenue excluding import taxes--instead of in relation to individual tax categories,
as in the current system--and at smoothing the impact of cyclical fluctuations in the tax base on
provincial revenues (e.g., by utilizing a moving average of federal revenues as the base for the
calculation of the annual federal transfers to the provinces). The reform of intergovernmental
fiscal relations will also focus on the need for broadening the base, and increasing the
effectiveness of provincial tax systems.

19. The successful implementation of the fiscal consolidation programs for the federal
government and the provinces outlined above should allow a gradual reduction of the ratio
of the public debt to GDP during the program period, even after the payment or
securitization of government liabilities related to court rulings or to pending court challenges. In
order to correctly assess the extent of these liabilities, and facilitate an appropriate defense of the
public interest in pending court cases, the fiscal emergency bill recently submitted to Congress
calls for a temporary suspension of such cases.

20. The main objectives of the government's debt management policy during the
program period are to smooth and lengthen the maturity profile of the debt, minimize its cost
through active liability management, and promote the development of the domestic capital
market. An active and transparent dialogue will continue to be carried out with market
participants, both at home and abroad, to keep them informed of the government's financing
plans as they evolve during the year. It is the authorities' intention to increase, as market
conditions permit, the average size of government bond issues, in order to increase their liquidity,
and also to maintain an adequate pre-financing cushion. Recourse to short-term financing will
continue to be limited, in line with the ceilings established in the program. The government
intends to continue the sale of its assets, including remaining shares in privatized financial
institutions and enterprises in the energy sector, as well as selected real estate in its patrimony.
In 2000, these operations are expected to yield Arg$700 million (0.2 percent
of GDP).

21. Financial policies will continue to aim at buttressing confidence in the domestic
banking system, and creating the conditions for further monetization of the economy and an
adequate flow of credit to private sector. The Central Bank (BCRA) intends to keep the coverage
of private sector bank deposits with liquid foreign assets at around 35 percent. The strong
liquidity position of banks and the continued repurchase of outstanding Fund credit will allow the
BCRA to continue reducing its net domestic assets, which are targeted to decline by
Arg$1,080 million in 2000.

22. In the area of financial reform, the government intends to seek early approval of
proposed changes to the BCRA Charter, to strengthen the ability of the latter to deal with
potential troubled financial institutions. The BCRA is reviewing the banking regulatory and
prudential framework in order to assess its consistency with international standards and best
practices in this area. It is also continuing its efforts to strengthen bank supervision further
through cooperation agreements with supervisors in main industrial countries and other relevant
financial markets, and through appropriate training of its personnel. A system to provide early
warning of changes in terms and conditions of access by commercial banks to external credit
lines has been in place since late 1999, and is being further improved. The government
will present legislation to allow the transformation of the Banco Nación into a
state-owned corporation, to increase the transparency of its operations, and to limit its exposure
to individual debtors who have not received adequate credit ratings. Steps also are being taken to
ensure that the loan portfolio of the Banco Nación is adequately provisioned, and the
bank is sufficiently capitalized. To promote the development of the domestic capital
market, the government has set up an interagency committee to review the regulatory
framework for banks and nonbank financial intermediaries, with a view better to coordinate and
modernize them. It is also seeking to reduce systemic risk and improve the microstructure of the
financial system, in particular the trading and settlements systems for securities.

23. In the labor market area, the government considers it necessary to modify the
legal and regulatory framework, so as to promote a smooth adaptation of this market to changing
patterns of demand and production, and to create the incentives to reduce informality and
precariousness in employment. For this purpose the government has recently sent to
Congress a new labor legislation reform bill proposing: (a) the gradual elimination over a
two-year period of the "ultractividad" clause which extends indefinitely expired labor
contracts, in the absence of the parties' agreement on a new contract; (b) a decentralization of
labor negotiations, granting contracts at the enterprise level legal predominance over sectoral
level agreements; (c) the creation of arbitration and mediation services; (d) allowing for the
negotiated modification of labor agreements in cases where the economic stability of the firm is
threatened; (e) an extension of the probation period for newly recruited workers to six months;
and (f) steps to streamline labor registration procedures and modify the existing presumptive
taxation system for microenterprises, to extend it to sectors (such as low-income self-employed,
and domestic workers), which are currently characterized by high degrees of
informality.

24. The government regards the promotion of competition in domestic markets,
especially in the services sector, as crucial to improve efficiency, consumer welfare, and
ultimately the competitiveness of the economy. For this purpose, it has already taken the
following steps: (a) the creation of a national secretariat for the defense of competition
and of consumers; (b) the issuance of implementing regulations for the existing antitrust and
antimonopoly law; (c) the proposal to Congress of a framework law for the federal regulatory
agencies; and (d) negotiations with providers of services, e.g., in the telecommunications
and energy sectors, which currently enjoy market dominant positions, to secure a reduction of
tariffs.

25. The government also intends to continue an open trade policy both on a multilateral
basis and within Mercosur. With respect to the latter, where trade relations have been
affected by the sharp depreciation of the real in 1999, the government is placing
increased emphasis on institutionalizing mechanisms for the resolution of trade disputes, and on
securing greater macroeconomic convergence, through an improved policy dialogue. In this
context, the Argentine and Brazilian governments have recently agreed to a comprehensive
independent review of investment subsidies, particularly in the sensitive automotive sector, with
a view to leveling as much as possible the playing field and eliminating distortions.

Argentina: Quantitative Performance Criteria for
2000-021(In millions of Argentine pesos or U.S. dollars)

Jan.-Mar.2000
Program

Jan.-Jun.2000
Program

Jan.-Sep.2000
Program

Jan.-Dec.2000
Program

Jan.-Dec.2001 Program2

Jan.-Dec.2002
Program2

1. Cumulative balance of the
Federal Government

(2,150)

(2,690)

(3,435)

(4,700)

(2,800)

(600)

2. Cumulative primary expenditure
of the Federal Government

13,390

26,130

39,840

53,230

. . .

. . .

3. Cumulative consolidated
balance of the Provincial
Governments3

. . .

(1,370)

. . .

(2,200)

(1,400)

(900)

4. Cumulative change in the debt
of the Federal Government

2,860

6,860

4,710

3,400

. . .

. . .

5. Cumulative change in the short-term
debt of the Federal Government

1,500

1,500

1,500

1,500

. . .

. . .

6. Cumulative change in the debt of
the Consolidated Public Sector4

. . .

. . .

6,310

5,400

. . .

. . .

7. Cumulative change in the net
domestic assets of the Central Bank

(275)

(440)

(850)

(1,080)

. . .

. . .

1As defined in the attached
Technical Memorandum of Understanding.2These targets are indicative at the present time, to be changed to performance
criteria during the last review of the program for the preceeding year.3Indicative.4Indicative through September 2000.

Technical Memorandum of
Understanding

This memorandum presents a detailed definition of the variables included in the quantitative
performance criteria table annexed to the Policy Memorandum.

I. Cumulative balance of the Federal Government. This balance
comprises the result of the Federal Government (including PAMI, and excluding transfers of
profits from the Central Bank and privatization receipts) and the result of the Central Bank
(BCRA). The Federal Government result will be measured from below the line on the basis of:
(a) debt information provided by public sector debt reporting system (SIGADE), including all
short-term debt of the Federal Government; (b) net asset transactions of the Federal Government
as reported by the Secretaria de Hacienda, the Dirección Nacional de Cuentas
Internacionales (DNCI), and the Gerencia de Manejo de Reservas Internacionales of the BCRA;
and (c) information on bank borrowing and bank deposits provided by the BCRA. The result of
the BCRA is defined as interest earnings on gross international reserves (as defined below) plus
interest on government bond holdings of the BCRA minus net interest paid on reverse
repos.

II. Cumulative ceiling on primary expenditures of the Federal
Government. This ceiling applies to the noninterest expenditure of the Federal
Government.

III. Cumulative balance of the provinces. This balance comprises the
consolidated result of the provinces, including the city of Buenos Aires. The result of these
jurisdictions will be measured from above the line, with expenditure defined on an accrual basis,
according to the information provided by the Sub-Secretaria de Programación Regional
(SSPR). This limit will be indicative.

IV. Cumulative change in the debt of the Federal Government. This
debt includes all foreign currency denominated and Argentine peso denominated debt obligations
and guarantees of the federal government (including public enterprises, PAMI, Inder, and trust
funds). These debt obligations are defined to include those with local and foreign financial
institutions, international organizations, bonds, and bridge loans. This limit will be adjusted: (a)
downward (upward) for excesses (shortfalls) in privatization receipts relative to the program; (b)
upward for amounts related to the restructuring of provincial debt by up to Arg$1.2 billion; (c)
upward for debt issued in 2000 for the consolidation of past obligations by up to Arg$1.7 billion,
plus debt consolidated by Inder; (d) downward by the net effect of debt cancellations or swaps,
and (e) upward for debt issued to finance the Fiscal Stabilization Fund by up to US$385
million in 2000, (f) upward for borrowing up to US$1.3 billion from multilateral agencies on
behalf of provinces and official banks (deuda indirecta) in 2000, and (g) with regard to the
position in December 2000, upward for borrowing up to US$4 billion related to 2001 financing
requirements and deposited at the BCRA. The data used to monitor debt developments will be
taken from SIGADE, including all short term debt of the Federal Government. The stock of debt
will be valued at end-1999 exchange rates and measured at end-period.

V. Cumulative change in short-term debt of the Federal Government.
It includes all domestic and foreign federal and federally guaranteed debt with an original
maturity of one year or less.

VI. Cumulative change in the debt of the Consolidated Public Sector.
This debt includes the sum of the changes in the debt of the Federal Government as defined in
IV. above (including the corresponding adjustments) and that of the provincial governments and
the city of Buenos Aires, net of changes in intergovernmental debt. The debt of the provincial
governments and city of Buenos Aires, will be defined to include obligations to local and foreign
financial institutions, to international organizations, and bonds (excluding peso denominated
bonds placed outside the financial system). The limit on this provincial debt will be adjusted: (a)
downward (upward) for excesses (shortfalls) in privatization receipts relative to the program, and
(b) upward (downward) for any increase (decrease) in net deposits of the provinces in the
banking system during the year. The upward adjustment on account of an increase in net deposits
of the provinces, which allows for over-borrowing, will be limited to Arg$1 billion. The data
used to monitor provincial debt will be provided by the SSPR, the SIGADE and the Central
Bank. The stock of debt will be valued at end-1999 exchange rates and measured at end-period.
This limit will be indicative for the third quarter of 2000 and binding thereafter.

VII. The net domestic assets (NDA) of the BCRA are defined as the
difference between monetary liabilities and net international reserves (NIR) of the BCRA, both
measured on the basis of end-of-period data. The monetary liabilities include currency issued,
legal bank reserves, liquidity requirements (reverse repos) and public sector deposits
(government and Anses) at the BCRA. NIR is defined as gross liquid international reserves of the
BCRA less foreign liabilities, and will be valued at exchange rates of December 31, 1999. Gross
liquid international reserves include BCRA holdings of gold, SDR's, foreign currency in the form
of cash, deposits abroad, and government securities of investment grade of OECD countries and
Argentina's net cash balance within the Latin America Trade Clearing System (ALADI),
excluding the accounting effects on holdings of reverse repo operations. This definition of
reserves excludes central bank holdings of government bonds. Liabilities to the IMF will be
valued at US$1.37 per SDR. The limit on net domestic assets will be adjusted upward by the
equivalent of purchases from the IMF under the arrangement. Also, the limit for December 2000
will be adjusted upward for up to Arg$200 million on account of temporary liquidity needs
reflected in an equivalent increase in repos (pases activos).